Ireland Pensions Update 

Pensions Ireland

30 March 2023

Ireland Pensions Update
They say a change is as good as a rest. However, as the pensions industry undergoes significant changes, there is no rest for sponsoring employers, trustees and pension providers. Below is a snapshot of many of the pensions and benefits issues that sponsoring employers, trustees and members should be aware of.

The new IORP II regime

The new IORP II pensions regime came into force on 1 January this year. The Pensions Authority states, “Compliance is not just a matter of putting in place new processes and more formal governance practices… The objective of these actions is to make sure that the management of the scheme is informed, thoughtful and thorough.” 

The Pensions Authority has now begun supervising IORP II compliance, saying it “expects trustees to implement the changes necessary to bring their schemes into compliance as a matter of priority.” 

We can expect more frequent and more detailed engagement by the Pensions Authority with trustee boards as they begin their journey under the new regime. 

The Pensions Act obliges the Pensions Authority to implement forward-looking risk-based supervision. “Forward looking risk-based supervision means that our [the Pensions Authority’s] supervision is focussed on risks to the interest of members and beneficiaries, not just on past instances of strict non-compliance.” It is expected that trustees will identify these risks and propose mitigating responses to these risks. The Code of Practice for trustees (the Code) sets out what is expected of trustees as a result of the implementation of IORP II.

  • Annual compliance statement (ACS)
    Section 26T of the Pensions Act requires trustees to prepare an ACS not later than 31 January each year for the purposes of prudential supervision. As part of its ongoing supervisory activity, the Pensions Authority will carry out sample checks and audits of trustee compliance. Failure to prepare an ACS may amount to an offence liable to prosecution.
  • Key function holders (KFHs)
    Pension schemes must have appointed KFHs by 1 January 2023. Trustees must notify the Pensions Authority of the outsourcing of a key function not later than four weeks after the appointment is made and before the appointment enters into force.
  • Policies
    Trustees must have in place written scheme policies as required under the Code. These policies must be carefully considered and specific to the scheme’s circumstances. Trustees must also put in place a structured process for developing and reviewing the policies to ensure that they are kept up to date, are relevant to the scheme’s circumstances and reflect the practices of the trustees.
  • Own-risk assessment (ORA)
    The Pensions Authority expects the ORA to be central to trustees’ work. Trustees must be conscious of conflicts of interest and proactive in carrying out the ORA. The Pensions Authority  says, “the purpose is not just to identify risks but as far as possible to address them.” The first ORA must be prepared by April 2024.
  • Trustee board composition
    The trustee board must collectively have the appropriate mix of skills, knowledge and experience required to provide good scheme governance. There must be a structured approach to assessing each trustee’s knowledge and experience. This includes considering the appropriate skill sets of each trustee and whether any gap needs to be addressed. At least one trustee must also have a qualification under one of the Pensions Authority’s approved training programmes.
  • Trustee meetings
    Trustees need to ensure that agendas, meeting papers and minutes are prepared in accordance with the Code’s requirements and the trustee meeting policy. A chairperson and scheme secretary must be appointed and a sufficient number of meetings must take place to maintain effective control and oversight. Decisions need to be documented and adequate records kept.
  • Outsourcing
    Trustees must review the performance of outsourced providers. Contracts with service providers should be in place and must contain what is required under the Code. The contracts should set out what trustees expect from each service provider and provide key performance indicators by which the service provider will be assessed. Trustees need to document reviews and decisions made on foot of reviews and the Pensions Authority expects such documented reviews and decisions to be made available.
  • Pension benefit statements
    Pension benefit statements must be issued to active and deferred members in 2023 with an effective date of 1 January 2023 or later. The statements must contain prescribed information.
  • Electronic communications
    Trustees are permitted in accordance with the Pensions Act to provide information to members or beneficiaries using electronic methods. Trustees must also comply with the Electronic Commerce Act, 2000 (ECA). The Pensions Authority has confirmed that trustees are responsible for deciding how they comply with the ECA and what type of consent is required from members to receive information electronically, for example active or passive consent. The Pensions Authority says that trustees should consider the profile and experience of their scheme membership when deciding what type of consent is most appropriate.
  • Disclosure requirements
    Trustees must meet a number of new disclosure requirements. The Pensions Authority expects schemes to actively work to achieve compliance with these new regulations and reserves the right to take enforcement action.
  • Critical reviews of administrators and investment managers

    The Code requires trustees to undertake a critical review of the performance of their administrators and investment managers. The first critical review must be completed by no later than April 2024, although critical reviews of investment managers can be pushed out for a further two years at the trustees’ discretion.

    Mercer offers scheme secretarial services that provide support in managing the additional governance requirements under IORP II as well as acting as a central conduit for scheme operations and playing a key part in delivering the scheme’s objectives.

Schemes moving to master trusts or PRSAs

The Pensions Authority has confirmed that all group pension schemes and one-member arrangements (OMAs) established after 22 April 2021 must comply fully with the Pensions Act (including IORP II requirements) unless:

  • A formal commitment was made before 1 January 2023 that the scheme will be wound up and the assets transferred to a master trust or personal retirement savings accounts (PRSAs); and
  • The asset transfer and winding up is completed by the end of 2023 in the case of group pension schemes and within six months after the formal commitment has been made in the case of OMAs.

A formal commitment to wind up a scheme includes a written instruction from the employer to the trustees to wind up the scheme or a notification from the trustees to members notifying them of the intention to wind up the scheme. It does not mean that the winding up of the scheme must have been formally triggered before the end of 2022.

The Mercer Master Trust has been in operation since 2006, making it one of the longest-established master trusts in Ireland. It is also the largest master trust in the country, involving more than 100 employers and 25,000 people. By combining our scale and expertise, we deliver the most compelling master trust experience in the market. With engaging communications in a future-proofed investment solution, the Mercer Master Trust meets the needs of employers and all generations of members.

Industry developments

  • Auto-enrolment (AE)

    The planned introduction of the new AE retirement savings system has attracted widespread media attention. When the system arrives, it will have significant business implications for many employers, who will need to consider its impact well in advance. 

    As we understand it, AE remains on track for enrolments to happen in Q1 2024. However, Department of Finance officials recently expressed concerns around whether this timetable is still feasible given the scale of work to be done. A draft bill is anticipated later this year. This will be an important development as the bill will reveal much more about the structure of the new system, how it will interact with existing occupational pension schemes and the implementation timetable.

  • How might AE affect employers that already provide a pension scheme to employees?

    Employers will have to ensure any employees aged between 23 and 60 years of age earning above €20,000 are automatically included in pension saving either via a central system operated by the State or through an occupational pension scheme. The central AE system is intended to exist alongside, rather than replace, existing pension schemes. However, employers will have a choice to make: they can either enrol in-scope employees in the central AE system or use their existing (or a new) occupational pension scheme or master trust. If they use a pension scheme, that scheme will have to meet certain minimum AE standards. 

    Our view is that meeting minimum AE standards using an employer’s existing scheme will almost certainly be the least disruptive option. Providing employees with access to both systems will likely lead to greater complexity and confusion, requiring additional time and effort – and increased costs.

  • What has Mercer been doing regarding AE?
    Mercer has been engaging with the government on these and other issues regarding AE and its likely impacts, focusing on the implications for employers that already provide pension schemes and the strength of the existing occupational pension system in Ireland. We have flagged that employers need more information on the impacts for their schemes and sufficient time to prepare for and implement the required changes. Mercer will continue to engage on this and provide further updates as developments progress.
  • What should employers do now?
    It is important for employers to prepare for what’s coming. This means understanding what AE might mean for them, including the potential operational challenges, cost implications and how their pension scheme could be affected. Undertaking a high-level gap and cost analysis will provide an important indication of what employers can expect.
  • State pension

    A new series of reforms to the State pension and equality legislation was announced in September 2022 to include the following measures effective from 1 January 2024:

    • The State pension age will remain at 66, with a new flexible system to be introduced. 
    • Measures will be introduced that allow but do not compel an employee to stay in employment until their State pension age. 
    • Flexible options are to be introduced that allow employees to choose to continue to work until age 70 and defer payment of the State pension in return for a higher State pension. 
    • The State will move to a “total contributions approach” for calculating individual pension entitlements. 
    • The long-term sustainability of the State pension system is to be addressed through gradual, incremental increases in social insurance rates. 

    The government advises that its intention is to move away from a “one-size-fits-all” approach to the State pension age. 

    Flexible retirement will become a significant issue for employers. We are already seeing an increase in the number of employers that are receiving requests from employees to work into older age, driven by factors including affordability of retirement and cost of living concerns. These reforms are likely to accelerate this trend. Employers should now consider:

    • Whether continued inclusion of retirement ages in contracts remains justifiable
    • How to respond to employee requests to carry on working past contractual retirement age 
    • Whether wider flexible retirement policies should be adopted 
    • Whether pension and other benefit programmes will need to be adapted to accommodate longer-working employees
  • Pensions Authority regulatory activity for 2022
    • In 2022, the Pensions Authority concluded five prosecution cases, with one conviction for non-remittance of employee contributions. The remaining cases were struck out due to payment of arrears or the underlying matter being rectified before the court date. 
    • There were 15 investigations for alleged breaches of the Pensions Act. The breaches varied from deduction and non-remittance of contributions to failure to pay benefits. 
    • Seventeen investigations were finalised and closed in 2022. 
    • Nineteen engagement meetings were held with trustee boards of master trusts and eight engagement meetings with trustee boards of defined benefit (DB) and defined contribution (DC) schemes. 
    • 160 DB and 160 DC schemes were surveyed to assess their plans to meet enhanced governance and risk management requirements. A sample of group schemes and OMAs was subject to spot checks on the 2021 ACS.
  • Digital Operational Resilience Act (DORA)

    DORA was adopted by the European Parliament and came into force on 16 January 2023. It will be directly effective from 17 January 2025. It applies to all financial institutions – which includes occupational pension schemes with 15 or more members. 

    DORA imposes uniform requirements on financial institutions relating to the security of network and information systems. It creates a regulatory framework on digital operational resilience whereby financial entities will need to make sure they can withstand, respond to and recover from IT disruptions and threats. 

    The main requirements for schemes include the following:

    • Schemes must have a sound, comprehensive and well-documented information communications technology (ICT) risk management framework as part of their overall risk management system, including strategies, policies, procedures, ICT protocols and tools.
    • The ICT framework must be reviewed at least once a year.
    • Reports on the review must be submitted to the Pensions Authority on request. 
    • Schemes must have a comprehensive testing programme.
    • Schemes should review any contractual (outsourcing) arrangements to ensure that they comply with DORA. 

    Mercer has a long-established specialist risk management team in place to support trustees. We have a deep heritage in risk management and a long history of helping trustees to manage the risks inherent in their pension schemes. 

    Should you wish to discuss the implications of DORA on your scheme before it is implemented in January 2025, please contact us

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